A contract requiring a specified future monetary payment at a specified future point in time in exchange for the delivery of a specific asset is called a: * A. nonconvertible option. B. hedge. C. long contract. D. swap.

A contract requiring a specified future monetary payment at a specified future point in time in exchange for the delivery of a specific asset is called a: * A. nonconvertible option. B. hedge. C. long contract. D. swap.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 4Q

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Concept explainers

Swaps

A swap is a derivative contract in which two parties are agreed to exchange their cash flows from two different financial instruments for a defined period. In swap contracts, cash flows from one financial instrument are fixed and cash flow from other financial instruments is variable based on the interest rate, exchange rate, and commodity price. Swap contracts are transacted in an over-the-counter system. Swap contracts are utilized to hedge risk and mitigate loss.

Question

A contract requiring a specified future monetary payment at a specified future point in time in exchange for the delivery of a specific asset is called a: *
A. nonconvertible option.
B. hedge.
C. long contract.
D. swap.

Expert Solution

Step 1: Introduction:

A derivative is a complicated financial security that is agreed upon by two or more parties. Traders utilize derivatives to trade various assets and gain access to certain marketplaces. Stocks, bonds, commodities, currencies, interest rates, and market indexes are the most popular underlying assets for derivatives. Changes in the underlying asset's price determine the contract's value.

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